Real Time e-mini S&P Trading, plus contrarian commentary on all the markets, all the time

Thursday, June 03, 2010

Base building

Here is a 10 point box, one box reversal chart showing 24 hour e-mini trading since the low in February 2010. The important thing to notice is that the trading area which has developed near last week's 1036.75 low is wider than the one which appeared at the start of the decline in April (dashed blue ovals). This means that the technical position of the market is potentially strong enough to reverse the drop from April's 1216 top.

There are two point and figure counts which allow us to estimate the potential of any rally from current levels. The more conservative one counts across the recent base area and shows a rally potential to 1220. The more optimistic one counts across the entire base beginning with the May 6 low at 1056. It shows rally potential to 1380. The latter number is not as outlandish as it may sound today. There have been three sustained up trends within the current bull market thus far, up trends which ended at 957 in June 2009, at 1148 in January 2010, and at 1216 in April 2010. These three trends carried the S&P up an average of 31%. A 31% gain from the 1037 low of May 25 would put the ES at 1358.

The start of a move to 1300 and higher will be confirmed by a penetration of the declining red trend line which currently stands near 1125.

Interesting to see your declining red line near 1125 coinciding with the 3-phase target resistance i calc. Should be an interesting pivot. Post on this target can be found at marketkarma.blogspot.com -MK

Another way to look at the so called "base" is that the market spent a lot more time in lower price range and that makes it a weak market.

Moreover, we have yet to see confirmation of a bottom. The extremely low volume in the market only shows that many traders have packed up and left. Very unhealthy for the longer term!

What is the point in being bullish when there are so many doubts about the economy, rampant fraud in the market, the world on fire with messed up governments.

It is a lot safer to just short the rallies, until the old highs are broken, if at all they are broken. Why should I bet my money on it?

Moreover, I don't mind missing an up move, especially under all the uncertainty, as I am not even greedy!

Once again, it is a lot safer to guess the tops and short the rallies than to guess the bottom and buy the dips. Leave buying of the dips for the PPT, the FED, the banksters and their stupid HFT computers!

Kishore, classic comment! With more people like you in the market I can guarantee that Carl's prediction will be correct. I think you may find there is an asymmetric risk to the stock market but that's just a hunch I have..

I am learning from Carl's every word--Can't give wrong predictions like others boldly do.Following him made my all trades positive except 4trades till now.I started ES_F trading in December.I acknowledge myself an extremely successful trader after following Dr.Carl Futia.I am now actually getting rich in a short time,so who helped.Carl did.Can go with huge risks against prifits which is going in my favour.RESPECT CARL TAKING HIM AS MY BEST GUIDE AND TEACHER!

Kishore---Can never dare to attack as I respect you for your comments--misunderstanding!we are friends.I always respected you and read every word you wrote.I was raising 35 orphans--don't know how I picked Carl to follow ---This Happened (Huge Profits)and my Girls Are Safe With Profits Booked.No fear as trading is against profits.IT IS CARL and made Miracle happen to us.

Well, a good portion of my trading decision is decided by people like you.

I read the online sites like Market Watch, Business Insider and Zero Hedge. Also I focus my atention in the comments of those sites, (also of people like you in this place). And finally in spanish online newspapers, cause Im from Spain.

When all this group say in big headlines that we are gonna crash, I check my data and look for buy signals. After the market rise a bit in the maximum pesimism I try to check again what all this people say.

After the initial bounce they all say the market is driven by the PPT and the HFTs and they will define the rally as a died cat bounce. They say there is a pattern A or pattern B wich would lead us to the abysm, they would say there is a recession in the next corner. Also they will say nobody is trading this market cause there is no volumen.

Of course, in the past the kids were more respectful with the olders and in the past all of us were more happier.

But you know what? the market is always falling and rising, all is about probabilities and we are in a expansionary phase, say the opposite is being drived by the emotions, the desires and the last month trend. But the uptrend is alive while is not demonstrated the opposite. And good trends are healthy is are generated between a lot of pesimism or skepticism, like nowadays.

This was my long answer, but my short answer is YES. I use people like you to confirm my trades.

VP Biden said on Larry King, the economy will add 900,000 jobs in the second half of 2010. Maybe they are temp jobs but the headlines will move ES higher. Biden would not make these statements wo inside info. I only wish I had found Carls site earlier this year. Great job Carl.

Cash heads for the exits from stock funds after steady inflows in March and April. In the week ending May 26, U.S.-focused funds saw outflows of $13.4B (and $3.9B from international funds), the biggest outflows since March 11, 2009.

a) since the drops are sharper than rise, time spent at top need not be same as time spent forming so called base. The time spent forming so called base is merely a congestion area.

b) in a true P&F chart style, the projections are both ways. So if we start breaking down from the congestion area, we are looking at 100 and 200 pt drop bring ES to 1015 - 915 area (which is what my analysis prefers).

c) so the only question remains - are we breaking UP or DOWN - so far no one knows but my money is on DOWN unless proven wrong and for that I have the stops.

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About Me

I write three financial blogs. The first is Carl Futia.On this blog I post daily "guestimates" of the current trends and trend potential in important markets. Once a week I post an explanation of my views on one of these markets with illustrative charts.
My second blog, Carl Futia Real Time, is subscription based. It is a real time trading seminar in which members receive my real time analysis of the E-mini S&P futures and can watch me trade them. In this seminar I explain how I calculate support and resistance levels and how I recognize market "rejections" of support or resistance which then determine the current trend directions.
My third blog is called The Art of Contrarian Trading and is based on my book of the same title. On that blog I focus less on day-to-day market details and more on swings in investor sentiment, the "information cascades" which I talk about in my book.